Gpo Premier

Medicare: Overview and Discussion of Impact on Supply Chain Economics and other Affects Wayne L. Russell, Pharm.D., FASHP Senior Director, Premier, Inc.

Medicare Program: Overview • Health Insurance Program for people 65 years and older • People under 65 years with certain disabilities quality • People of all ages with end-stage renal disease requiring dialysis or renal transplant • www.CMS.gov website for a lot of information on Medicare program

Medicare Component Parts • Part A: Hospital inpatient care, skilled nursing facilities, hospice, some homecare • Part B: physician services, hospital outpatient care, some physical and occupational therapy • Part D: Prescription drug program for seniors

Drug Coverage Differences Part B and D Part B Coverage • Drugs that require administration via durable medical equipment (DME) such as inhalation drugs and IV drugs that require an infusion pump • Drugs furnished “incident to” physician services such as injectables and IV drugs that are not usually self-administered Part D Coverage • Drugs administered in self-administration (retail) setting or home infusion setting

Medicare Legislative History • Balanced Budget Act 1997: Gave CMS authority to establish a prospective payment system under Medicare for hospital outpatient services • Balanced Budget Refinement Act 1999 – Modifications – OPPS went into effect August 2000 • Dec. 8, 2003 – Medicare Prescription Drug, Improvement, and Modernization Act (MMA) – provides voluntary prescription drug benefit under Medicare • MMA section 303(c) revised payment methodology for Part B covered drugs going from AWP % to ASP methodology for hospitals to match physician payment

ASP Payment Model • January 1, 2005 drugs and biologics will be paid on a ASP (average sales price) model at 106% or ASP + 6% for outpatient services • ASP adjusted quarterly using data submitted by pharmaceutical manufacturers to CMS • ASP calculation includes volume discounts, prompt pay discounts, chargebacks, rebates(except Medicaid), free goods contingent on drug purchase, promotional fees, administrative fees (?)

Average Sales Price Calculation • CMS calculates a weighted average sales price for each billing • • • •

code NDC ASP = averages sales price per billing unit If a drug is sold as a package of 4 vials of 20mg per vial and the billing unit is 10mg then the ASP per billing unit is ASP/(4X20/10) = ASP/8 For single source drugs, payment is calculated on ASP or WAC whichever is lesser Return goods are not included in the calculation

Medicare Advisory Panel • Medicare Advisory Panel comprised of up to 15 full-time hospital employees or other providers subject to OPPS rules with minimum 5 years experience • Focus on technical agenda: reconfiguration of APCs, evaluation of APC weighting, HCPCS codes, claims data procedures, etc. • Minutes of meetings published on CMS website • March 2006 meeting – ASHP and hospital pharmacy representation presentations to Advisory Panel

Recommendations to Advisory Panel 3/06 • Provide recommendations on how and when medication

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management codes used by pharmacists for patient assessment and intervention should be used and provide reimbursement Implement by 2007 Examine pharmacy overhead cost issues and study how to measure and solicit feedback on how pharmacy should be reimbursed Develop appropriate payment for IVIG products CMS ignored recommendations of advisory panel, Medicare Payment Advisory Commission (MEDPAC), associations and providers to increase payment in 2006 to cover pharmacy overhead

Potential Impact on Supply Chain: GPO Perspective • Some manufacturers increase product price routinely due to ASP + 6% reimbursement model • Manufacturers of selected high-cost, biotech, outpatient drugs impacted by OPPS reluctant to contract with GPOs due to possible affect on ASP calculation • Supply Chain distribution model could be changed to fragmented model where high-cost biotech drugs would not be distributed through a “prime vendor” model due to manufacturer wanting to close gap between ASP and WAC price • Increase pressure on pharmacy distributors to move these products to specialty distribution model which increases cost to hospitals and decreases efficiency of supply chain possibly

Summary • Medicare legislation has wide-ranging impact on hospital pharmacy practice as well as supply chain expenses • Pharmacy needs to continue to provide data and active participation to CMS and others in Washington,DC on the impact the ASP reimbursement model is having not only on hospital finances but possibly supply chain distribution and associated costs

Title in upper and lower case • 1,800+ organization • National presence • All U.S. State  Owners  Affiliates

• Purchasing Partners • Healthcare Informatics